Core Views Despite the rapid rise in popularity of Iceland’s anti-establishment Pirate Party, we remain sceptical it will win power in the April 2017 general elections. Instead, the Pirates’ popularity will prompt the ruling coalition to pursue a more expansionary fiscal policy in 2016, which will allow it to regain public support. Iceland’s economic rebound will slow modestly in 2016, due to weaker demand from the eurozone and rising uncertainty around the lifting of capital controls this year. The Icelandic krona will come under pressure with the start of capital account liberalisation in the next few months. Krona depreciation will add to rising wage-pull inflationary pressures in H116, warranting monetary tightening, which will stabilise the currency in H216.

Executive Summary

Core Views

Key Risks

Chapter 1: Economic Outlook

SWOT Analysis

BMI Economic Risk Index

Economic Growth Outlook

Rebound To Remain In Place, But To Slow Down

Iceland's economic rebound will slow modestly in 2016, due to stagnant external demand and rising uncertainty around the lifting of